The fiscal deficit during the first two months of fiscal 2014-15 exceeds 45 per cent of the amount budgeted for the whole year in the February interim budget.
A week before he presents the first budget of the NDA government, Union Finance Minister Arun Jaitley faces the unenviable task of reining in the fiscal deficit, the excess of aggregate government expenditure over total income. Along with reviving growth and boosting infrastructure, controlling the deficit will most likely be a focus area. Always a difficult task for any finance minister, Mr. Jaitley’s role has become especially onerous for two reasons. According to figures released by the Controller General of Accounts, the fiscal deficit during the first two months of fiscal 2014-15 exceeds 45 per cent of the amount budgeted for the whole year in the February interim budget. In contrast, during the first two months of 2013-14 the figure was slightly over 33 per cent. An unanticipated increase in the fiscal deficit obviously reduces the elbow room available to stimulate growth. The second factor adding to the complexity of the forthcoming budget exercise is the fact that the interim budget’s estimates of key fiscal numbers have been based on unrealistic assumptions, which, as the early deficit numbers for the current year show, do not stand scrutiny.
In the interim budget for the current year, the then Finance Minister P. Chidambaram estimated the fiscal deficit for 2013-14 at 4.5 per cent of the GDP, significantly lower than the budget estimate of 4.8 per cent and even lower than the revised estimate of 4.6 per cent. For the current year, the target was pegged at 4.1 per cent. Quite obviously, the attainment of such an ambitious target is dependent on how realistic the underlying assumptions have been. Even in February, doubts were raised and more detailed studies now have reinforced the earlier scepticism of the UPA-II’s handling of public finance. Its claim of bringing down the deficit and simultaneously moving towards fiscal consolidation sounds incredible at a time of slowdown. Gross tax revenue fell short by about Rs.97,000 crore, increasing by only 10 per cent as against 19 per cent aimed for in the interim budget. Indirect tax collections under different heads were also sharply lower. Under those circumstances, the seemingly impossible containment of deficit at manageable levels has been possible only by bringing revenue receipts forward, shelving some expenditure to the next year and making unsustainable cuts in capital expenditure. None of this is possible or recommended for Mr. Jaitley whose important task will be to restate the financial position in a transparent manner. It is extremely unlikely that the fiscal deficit target of 4.1 per cent for the current year can be maintained but that will be a small price to pay for more transparent government finance.